Bao Capital issues a 4-year semiannual-pay bond wi
Bao Capital issues a 4-year semiannual-pay bond with a face value of $10 million and a coupon rate of 10%.The market interest rate is 11% when the bond is issued.The balance sheet liability at the end of the first semiannual period is closestto:
A.$9,650,700.
B.$9,683,250.
C.$9,715,850.
参考解答
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2024-10-27 12:48:46
Ans:C.
The initial liability is the amount received from the creditor, not the par value of the bond.
N=8, I/Y=11/2=5.5
MT=500,000;FV=10,000,000;
CPT→PV=$9,683,272.
The interest expense if the effective interest rate (the market rate at the time of issue) times the balance sheet liability.
$9,683,272x0.055=$532,580.
The value of the liability will change over time and is a function of the initial liability, the interest expense and the actual cash payment.In this case, it increases by the difference between the interest expenses and the actual cash payment:
$532,580-500,000=$32,580
$32,580+9,683,272=$9,715,852.
Tip: Knowing that the liability will increase is enough to select choice C without performing this last calculation.Entering N=7 and solving for PV also produces $9,715,852.
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